Question

Suppose you deposit ​$1 comma 000 cash into your checking account. By how much will checking deposits in the banking system increase as a result when the required reserve ratio is 0.5​0?

Answer 1

Answer:

change in the Money supply = $2000

Explanation:

given data

deposit = ​$1,000

reserve ratio = 0.5​0

to find out

how much will checking deposits in the banking system increase as a result

solution

we get here change in the Money supply that is express as

change in the Money supply = Change in the Monetary base × Money multiplier     ............................1

here

Money multiplier =  $\frac{1}{reserve\ ratio}$     ..................2

Money multiplier =  $\frac{1}{0.5}$    

Money multiplier = 2

put value in equation 1

change in the Money supply = 1000 × 2

change in the Money supply = $2000